Stopping the rot – an economic boost

16th March ‘20

“An economic boost in the near term – housing transactions and the multiplier effect”

Whilst the Chancellor cannot be accused of being reluctant to spend big – increasing the budget deficit by £125bn over the next five years – we question if large investments in infrastructure projects will drive much needed economic activity in the near term.  We believe the best way to achieve this is for policy makers to focus upon housing market transaction volumes by immediately introducing a one-year holiday for Stamp Duty Land Tax on all residential property purchases.

Removing this duty (friction) from the housing market would certainly lead to an immediate spike in transaction volumes as people found they no longer had to fund a large cost to move home or to invest in a buy-to-let.  Housing market transaction volumes are critical to the domestic economy because of the “multiplier effect”.

Craig Kemsley, Head of Tax at Calibrate Law said:

“Put simply, the multiplier effect occurs whenever people invest in a home or a buy-to-let as this naturally creates demand for other goods and services such as removal firms, DIY stores, kitchen and bathroom fitters, furniture suppliers and others.  This feeds through in the short term to consumer spending, employment, confidence, credit and ultimately tax receipts.”

Housing market transaction volumes have been flat over the last five years – at roughly 1.2m a year.  This has been masked by the increase in Stamp Duty Land Tax receipts from £10.7bn in 2014/15 to £12.0bn in 2018/19.

As a measure, removing Stamp Duty Land Tax for one year would be very affordable and more effective in the short term than the infrastructure spending measures announced in the budget where the economic returns are unlikely to be felt for many years.

John White, Founder of Calibrate Law said:

“The long lead times for infrastructure projects is a problem and the assumption they’re always economically accretive is flawed.  We need stimulus that has an immediate impact upon consumption and economic activity.”

We urge the government to reconsider its approach to stimulating the economy in the near term.  We think the most effective way to do this is to introduce an immediate one-year holiday for Stamp Duty Land Tax on all residential property purchases to encourage economic activity and consumer confidence at this difficult time.

This post is intended to be a brief note for clients and other interested parties. The information is believed to be correct at the date of publication but should not be relied upon as a substitute for professional advice. Please speak to a member of our team.

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